De Blasio tells lot owners to put up or pay up

If carried out, the idea would affect more than 10,500 lots in the five boroughs, with the largest concentration on Staten Island.

Call it Exhibit A. On part of an irregularly shaped block in the Highbridge section of the Bronx, a chain-link fence wraps around a three-acre property that has sat vacant for decades. Trees and weeds have run riot, in the process encroaching upon the sidewalks along University Avenue, even as the property's assessed value in the past decade has quietly soared from $716,000 to $9 million, according to city records.

And yet, because most of the property is zoned for residential use, and is assessed in the same low-density class as single-family homes, the Olnick Organization, which owns the land, pays less than $8,000 annually in property taxes on that residential portion. Cases like that spurred Public Advocate Bill de Blasio in April to push for tax hikes on vacant land to force owners either to put it to use and build housing or to sell it to those who will. As mayor-elect, Mr. de Blasio is pledging to carry out his idea, which today would affect more than 10,500 lots in the five boroughs, with the largest concentration on Staten Island. The plan, after a five-year phase-in period, would hike yearly rates by an average of $15,300, according to estimates by the Independent Budget Office. As for the long-vacant Highbridge lot, the city property taxes on the large residential portion would balloon to about $180,000.

$6.8K—Property taxes paid annually by Frank Fristachi and Suzannah Matalon on their Williamsburg lot$17K—Amount they would pay under Bill de Blasio's plan

By increasing the cost of inactivity to prohibitive levels, the hope is that more land can be put back into use and much-needed housing can be built. Many observers think it can work if the costs of holding land idle are driven high enough.

"It would drive the price of land down and increase development, to the extent the tax increases are significant," predicted Robert Knakal, chairman of Massey Knakal Realty Services. "The more expensive [vacant land becomes to hold], the less of it you will get—that's Economics 101."

New revenue stream

The plan could also provide a significant jolt of new revenue for the city that could go toward an affordable-housing program similar to Mayor Michael Bloomberg's New Housing Marketplace Plan, which is on track to build or preserve 165,000 units. Mr. de Blasio estimated his plan would eventually generate $162 million annually, which could fund construction of 4,000 new units, part of a broader goal to create or preserve nearly 200,000 units of affordable housing over 10 years.

"Where we have rules like this that are holding us back, his administration will make the changes needed to get shovels in the ground," a de Blasio spokeswoman told Crain's in a statement last week.Advocates of the change insist that altering the way vacant lots are taxed is not a tax hike but the closing of a long-running and counterproductive loophole. Currently, all vacant lots that are zoned residential—no matter their size or development potential—are lumped into the same category as single-family homes. This means they are assessed at 6% of their market value. Mr. de Blasio's plan would instead put the land in the same category as commercial properties, increasing the assessment value to 45% of the market value of the land over five years. This will undoubtedly raise the cost of holding land. But some of the most significant increases on long-held properties like the Olnick parcels will come from eliminating year-over-year caps that have kept their residential tax rates below the $10,000 mark, for example, instead of $80,000—the current maximum rate for the property. (An Olnick spokesman declined to comment.) Some observers believe, however, that such a move carries big risks. For openers, it could discourage developers from patiently assembling large blocks of property needed for big developments by effectively driving up their property costs. That could, perversely enough, limit new housing production. The measure could also produce another undesirable effect.

Photo

Buck Ennis

Mr. de Blasio estimated his plan would eventually generate $162 million annually.

"Maybe a guy says, 'I'm not going to pay these taxes, I'm going to build a taxpayer,'" said Eric Anton, a managing partner at investment bank Brookfield Financial, referring to a small development on a piece of property that generates just enough money to cover payments to the government.

Mr. de Blasio's plan targets not active developers, but what the mayor-elect brands as "speculators"—owners who sit on buildable land waiting for prices to rise. In the past, Mr. de Blasio has singled out booming neighborhoods like Brooklyn's Williamsburg as prime locations for people warehousing real estate—all while the city suffers a critical housing shortage. Enter Exhibit B. In the middle of Williamsburg, where land prices have doubled and redoubled in the past 20 years, Frank Fristachi and Suzannah Matalon have clung to an 8,900-square-foot parcel of fenced-off land at the corner of South First Street and Driggs Avenue. The owners insist they do not fit into Mr. de Blasio's mold. "It's not vacant—it contains a beautiful garden, trees, bushes and plants, and was rescued from being a dump owned by the city," Mr. Fristachi said. "I think I should get a tax rebate for supplying this neighborhood with clean air and light." Mr. Fristachi also disputes the suggestion that he's a speculator, pointing out that if he were one, he'd have already unloaded the parcel and banked his fat profits. Nonetheless, he conceded that Mr. de Blasio's proposal has made him unsure about what he should do if his property taxes rise from about $6,800 annually to an estimated $17,000 under the mayor-elect's plan. Brokers in the area think the Mr. Fristachis of this world are an increasingly rare breed in booming Williamsburg. But in lower-income neighborhoods, vacant lots pose serious problems, according to Martin Dunn, who runs Dunn Development Corp., a for-profit company that builds affordable housing. Mr. Dunn believes that upping the cost of inactivity for landowners would pay dividends by reducing the number of empty lots, which not only become magnets for crime, garbage and vermin, but also drive down neighboring property values—and city tax revenue. "It doesn't hurt developers like me," he said. "I'll gladly pay the higher taxes for the few years I hold a property if it helps to stop long-term speculation." Mr. de Blasio's proposal would primarily be aimed at those very neighborhoods. It would apply only to vacant properties in the boroughs outside Manhattan, except for parcels in flood zones. Mr. de Blasio's plan is nearly identical to a campaign that was successfully waged in Manhattan in 2007 by Borough President Scott Stringer and state lawmakers, which resulted in the tax change being made to all properties north of 110th Street. Below that line, vacant properties had historically been taxed at more costly commercial rates.

'Productive' move

"Turning what was an incentive for warehousing land and real estate speculation into an incentive for building affordable housing is both productive and progressive," Mr. Stringer said in a 2008 press release after state legislation that he had strongly supported was signed by then-Gov. David Paterson.

Democratic state Sen. José Serrano of the Bronx was one of the sponsors of that bill, and is confident the tax change had an impact on vacant properties in Harlem. Before the law was passed, an informal 2006 survey undertaken by Mr. Stringer found there were roughly 350 vacant lots in the three community districts that make up Harlem, Morningside Heights and Hamilton Heights, areas that saw increased building activity. In 2010, two years after the property-tax law was passed, a nonprofit called Picture the Homeless performed a similar survey of the same area and found 130 vacant lots. Mr. Serrano concedes the contribution the tax change had to these numbers is difficult to quantify, but nevertheless is adamant about expanding the change to the rest of the city. The caveat is that he doubts whether Mr. de Blasio will have any luck in persuading Albany to pass it without the help of Gov. Andrew Cuomo, who has not weighed in on the issue. "I think it has a great chance in the Assembly," he said. "I think the Senate is often a place where good ideas go to die."

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